How Going 'Lean' Fattened the Washington State Lottery's Payoff

A team at the Washington state lottery found a way to better adapt to retailers' needs. The result was a big boost in sales.

Most "lean" initiatives in government at best reduce costs so budget dollars can be redeployed to other critical services. But for the Washington State lottery, a lean effort focused on better understanding customer needs is being credited with increasing scratch-ticket sales by as much as $30 million--delivering the best year for sales in the history of the lottery, according to lottery officials.

A cross-functional agency team, including representatives of finance, operations, sales, marketing and information services, was asked to explore how to create a more customer-centric distribution system, explains Jim Warick, deputy director of the state lottery. "We wanted the people with hands-on experience to optimize our scratch-product distribution," he says.

The team members dug into the details, from product inception to distribution to sales to the shredding of unused ticket inventory. They mapped the related processes to try to uncover opportunities to improve the business and better meet customer needs. "The goal of the team was to get the right product in the right place at the right time," says Warick.

Historically, retailers got pretty much what the lottery thought they needed. A typical ticket-dispensing machine has 20 slots, and in each slot a product is displayed with a scratch-off ticket selling for $1, $2, $3, $5, $10 or $20. What went in the slots at the retailer was determined at lottery headquarters.

But "we know the retailers best," says Sam Wilson, a district sales representative for the lottery. "We have always tried to be customer-driven, but in the field we did not have much say in what tickets a given retailer received."

As Wilson knows, each retail location serves a unique clientele. Some neighborhoods enjoy a demographic where higher-priced tickets sell readily, while in other neighborhoods lower-priced tickets sell in higher volume.

This kind of understanding of the "voice of the customer" is a central theme throughout the lean approach. Customers know what works, and when we tap into their experience, we can uncover what in our processes serves their needs and what it is we do that does not. In the lottery world, the field sales reps work side by side with retailers and see what is and isn't working.

After about eight months of study, the lottery rolled out a set of solutions enabled by technology that allows for retail location-by-location customization of the mix of tickets to better meet the local market's preferences. In simple terms rather than every retailer getting the same thing, now retailers get a better match for what will sell in their outlets.

"Now, we have a conversation with the retailer, and then we can fine-tune the settings for distribution to meet their needs," explains Wilson. "With our customer making the key choices over how many games and tickets they want and at what price points, we have seen a big jump in sales."

Wilson acknowledges that the new approach is a bit more work for the sales team, but he says the results make the extra effort well worth it. Warick, the deputy lottery director, agrees. "In the past we had the product in the marketplace but it wasn't necessarily in the right places," he says. "This was a small project, and I believe there's many more ahead of us that will continue to improve our ability to meet our customer's needs."

Funds from the state's lottery primarily go into the Washington Opportunity Pathways account, which helps fund higher-education programs, problem-gambling efforts and other state initiatives. Better meeting retailers needs, resulting in increased revenue, gives a boost to important state efforts.

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John M. Bernard is chairman and founder of Portland, Ore.-based Mass Ingenuity and author of "Business at the Speed of Now." His firm is doing organizational-transformation consulting in Oregon and Wa
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